Some casinos broke revenue promises; Mount Airy 52% under estimate

Tuesday

Feb 5, 2013 at 12:01 AM

When Pennsylvania was deciding in 2006 who should get a license to run state-regulated casinos, gambling companies from around the country arrived in Harrisburg with big promises of how much money they could bring to the state.

MATT ASSAD

When Pennsylvania was deciding in 2006 who should get a license to run state-regulated casinos, gambling companies from around the country arrived in Harrisburg with big promises of how much money they could bring to the state.

It turns out that many of those casino executives were exaggerating by as much as 50 percent on how much gambling revenues their gaming halls would generate.

Even Sands Casino Resort Bethlehem, considered by some to be the state's most successful casino, isn't coming close to reaching the lofty promises it made to the Pennsylvania Gaming Control Board.

So, did the Sands exaggerate to win a license?

"I don't think anyone would call it lying, but they were competing with each other, and I think they were trying to put their best foot forward," said gaming board spokesman Richard McGarvey. "If you look at the racetrack casinos that weren't really competing, you'll see they were close to hitting the mark."

Pennsylvania in 2006 held gaming hearings to decide which locations would get licenses to operate casinos. The six horse-racing tracks were guaranteed a license, so long as they followed gaming board rules. But 13 gambling companies were vying for the remaining five full licenses. Each projected how much taxable gambling revenues they could annually create, after three years of operations. Back then, their projections only included slot machine revenues because table games were not yet allowed.

With three full years in the books for most casinos, their 2012 revenues show that the six racetrack casinos came within 6 percent of hitting their projections, including three that beat their predictions and one, Mohegan Sun in Wilkes-Barre, that over-delivered by 38 percent.

However, those four stand-alone casinos — a fifth casino never got built — that "put their best foot forward" didn't fare nearly so well. Even Sands, whose slot machine take is second in the state, came up 37 percent short of the $465 million it projected.

Mount Airy Casino in Monroe County didn't even bring in half what it promised, falling 52 percent below the $313 million it promised.

To be fair, gambling analyst Shawn McCloud pointed out that those casino projections were made just before the recession hit.

"The economy is a big factor," said McCloud, a vice president for Spectrum Gaming, a New Jersey company that tracks gambling nationwide. "You'll see revenues nationwide fell off a cliff after that."

According to the American Gaming Association, gambling revenues nationwide increased more than 30 percent after 2002 before peaking at $37.5 billion in 2007. They had fallen to $34 billion by 2009 and only recovered to $35.6 in 2011.

That still doesn't explain why the Pennsylvania tracks did a better job predicting than the stand-alones. But size may have had something to do with it. While the tracks were adding smaller casinos onto the existing horse-racing facilities, the stand-alone casinos were building much larger facilities. In most cases, the stand-alones planned to open with 3,000 slot machines and increase to 5,000 in six months.

That didn't happen with any of them. Mount Airy's numbers have been so disappointing that it has removed hundreds of slot machines from the floor, dropping its total to just above 2,000.

Sands also did not follow through on its plan to expand to 5,000 slot machines, but its operators preferred to take a glass-half-full approach to that issue.

"Based on the economic conditions at the time, we decided against the additional slot machines," said Sands spokeswoman Julia Corwin. "This decision enabled us to use the space for table games when the legislation passed allowing table games in (Pennsylvania)."

With room to install tables in 2010 without more building, Sands has gone on to have the busiest table games in the state and one of the most lucrative table rooms in the nation, outside Las Vegas.

To its credit, the Gaming Control Board didn't rely on the word of casino executives in 2006. It appointed a task force to do independent projections, most of which came in lower.

In the end, while the task force over-estimated some casinos and under-estimated others, the casinos' collective take statewide is close to the $2.5 billion in slot revenues the task force predicted for the existing casinos.

"Our projections were a lot closer to what actually happened," McGarvey said. "Then again, the task force had a different motivation in coming up with them."